Three Fed Policy Voters Signal Prolonged Easing to Stoke Growth

Eric Rosengren, president of the Federal Reserve Bank of Boston. Photographer: Brendan Hoffman/Bloomberg

Nov. 5 (Bloomberg) -- Three Federal Reserve officials who
vote on policy this year signaled the Fed may press on with
easing for some time to reduce the jobless rate and push up
inflation toward the central bank’s 2 percent target.

“Monetary policy in the United States is likely to remain
highly accommodative for some time,” Fed Governor Jerome Powell
said yesterday in a speech in San Francisco. Boston Fed
President Eric Rosengren backed further easing to “achieve full
employment within a reasonable forecast horizon,” while James
Bullard of the St. Louis Fed said in an interview on CNBC he
wants the Fed to “meet our goals,” singling out inflation.

The policy-setting Federal Open Market Committee last week
maintained $85 billion in monthly asset purchases after
unexpectedly refraining from tapering the program in September.
The committee wants to see more signs of sustained economic
gains, it said on Oct. 30 after a two-day meeting.

The Fed won’t reduce its bond purchases until March,
according to the median estimate of economists surveyed by
Bloomberg on Oct. 17-18 after a federal government shutdown
slowed fourth-quarter growth and interrupted the flow of
official economic data. Economists had initially expected a
tapering of so-called quantitative easing in September.

Economists in a Bloomberg survey last week estimated the
economy expanded 2 percent in the third quarter, down from 2.5
percent the previous quarter. The Commerce Department plans to
release its initial estimate of third quarter growth on Nov. 7.

Dual Mandate

The central bank is falling short of meeting both sides of
its dual mandate. Unemployment in September was 7.2 percent as
payroll growth slowed, while the Fed’s preferred gauge of
inflation, the personal consumption expenditures index, rose at
a year-over-year rate of 1.2 percent in August.

The central bank is currently purchasing assets at “a
torrid pace, and I’d rather get out of it if we can, but I’d
like to meet our goals,” Bullard said yesterday.

Rosengren, speaking in Boston, said “monetary policy is
likely to need to remain accommodative for some time so that we
can achieve full employment within a reasonable forecast
horizon.”

‘Necessarily Uncertain’

“The timing of this moderation in the pace of purchases is
necessarily uncertain, as it depends on the evolution of the
economy,” Powell said. “What is reasonable to expect us to do
is to be transparent and to move gradually when it is time to
withdraw accommodation, or even to begin reducing the pace at
which we add accommodation,” he added in response to an
audience question after the speech.

The FOMC in its statement last week signaled diminishing
concern over higher borrowing costs, dropping a warning from the
previous meeting that “tightening” financial conditions could
impair the four-year expansion. The committee said fiscal policy
is restraining economic growth.

Minutes from the FOMC’s Sept. 17-18 meeting showed the
committee’s decision to refrain from reducing bond buying was
“a relatively close call” for several members.

When the Fed eventually slows its quantitative easing
program from the current pace of $85 billion a month, “we will
not be restraining the economy -- in fact, we will still be
adding stimulus to the economy but in smaller increments than
before,” Rosengren said in his speech.